Question

1	An expansionary fiscal policy can result in:
	lower prices. a recession. inflation and higher GDP. higher unemployment rates.

2	The focus of supply-side fiscal policies is on:
	short-run increases in output. long-run economic growth. long-run trade balances. long-run balanced budgets.

3.

When workers lose their job, they file for unemployment benefits; therefore government spending on such programs naturally rises during recessions. As the economy recovers and people go back to work, spending on unemployment programs shrinks. Based on the given information, which of the following is correct?
	The spending on unemployment benefits is designed to increase short-run aggregate supply during recessions. Unemployment benefit programs are an example of discretionary fiscal policy. Unemployment compensation is a form of an automatic stabilizer. Unemployment benefit programs are an example of a supply-side policy

4.

Which of the following is an example of contractionary fiscal policy?
	building a new interstate highway increasing federal spending to renovate college campuses sending taxpayers a $600 rebate reducing military spending

Answer 1

1. Option C

• An expansionary fiscal policy is one of the type of fiscal policy enacted by the government to expand the economy.
• This fiscal policy is often used to increase the employment rate and decrease the recession by increasing government expenditures or decreasing the tax rates.
• This will lead to a higher GDP level, while at the same time increase the inflation rate.

2. Option B

• The supply side fiscal policy aims at lowering the taxes or the borrowing rates to improve the business and its production activities.
• These policies focus on long run economic growth rather than increasing the output in short run or maintaining long run trade balances or balanced budgets.

3. Option C.

• Automatic stabilizers are those tools that automatically stabilize the economy during economic upturns.
• In the above scenario , unemployment compensation is considered as the form of an automatic stabilizer.
• This is because the unemployment benefit provided to the people when they lose their jobs, naturally rise during recessions.
• This helps the economy to recover quickly and helps people to get back to their jobs.

4. Option D

• A contractionary fiscal policy is a type of fiscal policy in which the government increases tax rates and lowers the spending.
• Reducing military spending is an example of contractionary fiscal policy,as the spending on military is reduced by the government.